Terms Beginning With 'd'

Days Working Capital (DWC)

  • January 02, 2020
  • Team Kalkine

DWC measures average number of days taken by a company to transform working capital (current assets ? current liabilities) into sales revenue. It is a strong indicator of efficient management of working capital, which is calculated by dividing working capital to sales.

What are accounts payable? Accounts payable is the amount of cash a company is liable to pay to its suppliers and clear dues. As current liabilities of the company, accounts payable is required to be settled over the next twelve months.  It also shows the obligations of the business over the next year. Accounts payable is required to be repaid in a short period, depending on the relationship with suppliers. It is essentially a kind of short term debt, which is necessary to honour to prevent default.  As a part of the company’s working capital, it is widely used in analysing the cash flow of the business and cash flow trends over a period. Accounts payable may also depict the bargaining power of the company with its vendor and suppliers.  A vendor or supplier may give the customer longer credit period to settle the cash compared to other customers. The customer here is the company, which will incur accounts payable after buying goods on credit from the vendor.  There could be many reasons why the vendor is providing a more extended credit period to the firm such as long term relationship, bargaining power of the firm, strategic needs of the vendor, the scale of goods or services.  By maintaining a more extended repayment period to supplier and shorter cash realisation period from the customer, the company would be able to improve the working capital cycle and need funds to support the business-as-usual.  However, prudent working capital management calls for not overtly stretching the payable days as it might lead to dissatisfaction of supplier. Also, investors tend to closely watch the payable days cycle to determine the financial health of the business. When the financial conditions of a firm deteriorate, the management tend to delay the payment to their suppliers. What is accounts payable turnover ratio? Accounts payable turnover ratio shows the capability of a firm to pay cash to its customer after credit purchases. It is counted as an essential ratio to analyse the cash management attribute of the firm and its relationship with vendors or suppliers.  It is calculated by dividing purchases by average accounts payable.  Purchases by the company are calculated as the sum of the cost of sales and net inventory in a given period:  Now let’s understand this the help of an example. Let us suppose, Cost of sales of Company XYZ for the period was $60,000, and XYZ began with inventories worth $21000 and ended at $15000. Accounts payable at the beginning was $20000, and $15000 at the end.  Now the purchases will be $66000 (60000+21000-15000). The average accounts payable will be $17500. Therefore, the accounts payable turnover ratio will be 3.77x.  Dividing the number of weeks in a year by the accounts payable turnover ratio will give the number of weeks the company takes on average to settle its payables. In this case, it will be around 13.8 weeks (52/3.77). 

What is Data Analytics?  Data Analytics involves a set of quantitative and qualitative approaches and processes that can be used to determine useful information for business decision-making. The process involves various patterns and techniques, including: extracting a raw database, and categorising it to identify and analyse the behaviour, relation and connection of the results.  The ultimate goal is to acquire valuable information in order to make decisions for businesses’ benefit and productivity.  In today's competitive times, most companies chalk out their business plan with the help of data analytics. With organisations becoming customer-service oriented, data analytics has become a critical tool to reach the target audience in an effective manner while understanding their requirements. Once data is collected, it is analysed and stored according to organisations’ requirements.  The data analysis process has multiple layers involved, and its diverse modules are not just used in businesses but also in science and social science fields. Rather than making decisions based on just available information, one can utilise data analytics in examining the data in standard ways and churning out the results from it.  It has been observed that companies generally make decisions based on past references and future outcomes. Data analytics appears advantageous in providing useful information towards this end.  Why do Businesses Need to Use Data Analytics?  Many data analytics’ tools and softwares are readily available these days. These systems use resources, such as machine learning algorithms and automation.   Data scientists and analysts are counted amongst the leading career options as well. These professionals use data analytics techniques while researching and presenting useful information for businesses to increase productivity and gain. The process helps companies understand their target audience and determine effective ways to cater to their needs. Data analytics can further be used to design strategies in marketing campaigns and promotions and also evaluate its results.  Data analytics is primarily used in business-to-consumer (B2C) processes to boost business performance and improve the bottom line. There are data collection firms which gather consumer information and provide it to the businesses so that the companies can effectively influence the market. The collected data is not only used to understand and impact consumer behaviour but also determine market economics and its practical implementation.  The data used in the process can be either be data collected in the past or newly updated data. There are various methods to manage consumer and market information. It may come directly from the customers or potential customers or can be purchased from the data collection vendors. The data primarily includes audience demographics, behavioural patterns and expense threshold.  How Can Data Analytics be Effectively Used in Business Processes? Data analytics is an ever-evolving technique. Earlier, the data was collected manually, but with the rise of internet and technology, data is now collected online with the help of search engines and social media platforms. Subsequently, the information is analysed through available software.  Here is a list of some key steps businesses can follow to leverage the benefits of data analytics: Set up crucial metrics: This step reduces the guesswork and provide data-based insights to the businesses. Before embarking on the data analytics process, it is vital to determine the goal for your business. Analysing customer data helps in understanding conversion rate, consumer spending ability, demographics etc. The results of the analysis can support the businesses while making decisions in launching an advertising or marketing campaign. Similarly, the unwanted data can be erased from the database so that the brands can focus on their right target audience. The relevant metrics will change the course of the company and push it in the right direction. Moreover, once your key metrics are set, even when the market conditions change in the future, you can adjust the metrics according to the requirement and achieve the results. Set a clear module: It is important to examine the data correctly by avoiding common mistakes. An ambiguous path can produce confusing insights while wasting time and energy of businesses.  Therefore, it is recommended to draw a clear goal in order to achieve actionable insights. The data, when collected from different sources, need to be merged accurately in the analytics model. Businesses can modulate their data analytics systems either manually or through automation. There are various data modelling practices available in the market. The best use of these techniques can simplify the process of modelling complex data.  Data visualisation: Once the relevant data is collected, and the modules are set to analysis, visualisation of that data will assist in understanding the information correctly. When the businesses have an acute knowledge of what their target audience wants, they can then focus on strategising advertisement and content, which matches the consumers' interest.  It is the critical step in the data analytics process to distinguish insights from information.  Not everyone is comfortable dealing with numbers. Hence, ensuring that key stakeholders understand essential points and information can be displayed in a visually appealing format seem crucial to capitalise on data effectively. Right tools to implement insights:Having access to data and insights can get overwhelming. However, the information is worthless if the businesses are unable to implement it successfully. While it is important to collect the data and set critical metrics and modules to analyse it, it is also imperative to translate the data into practical actions. The eventual goal is to improve sales or grow profits. It is ultimately in the marketers' hands to transform the gained insights into a successful implementation. The consumers' insights should be incorporated while establishing a marketing plan and at all decision-making steps. 

What is Day Trading? Day trading is popular among a section of market participants. It is a type of speculation wherein trades are squared-off before the market close in the same day. An individual or a group is engaged in buying and selling of securities for a short period for profits, the trades could be active for seconds, minutes or hours.  One can engage in day trading of many securities in the market. Anyone who has sufficient capital to fund the purchase can engage in day trading. For a class of people, day trading is a full-time job.  Day traders are agnostic to the long-term implications of the security and motive is to benefit from the price changes on either side and make profit out of the asset price fluctuations within a day. They bet on price movements of the security and are not averse to take short positions to benefit from the fall in price.  Day trading is not only popular among individuals or retail traders but institutional traders as well, therefore the price movements are large sometimes depending on the magnitude of information flow and accessibility.  Everyone wants to make money faster, and many are inclined to speculate in markets, but it comes with considerable risk and potential loss of capital. People engaged in day trading also incur losses, and oftentimes outcomes are disheartening.  Day trading is a risky activity, similar to sports betting and gambling, and it could become addictive just like gambling and sports betting. Since the motive is to earn profits, the profits realised from day trading also tempt people to continue speculating.  People spend considerable time and efforts to make the most out of day trading. They have to continuously absorb and incorporate information flow, which has become increasingly accessible driven by new-age communications systems like Twitter, Facebook, forums etc. But not only information flows have been favourable, day traders are now equipped with best in class infrastructure to execute trades even on compact devices like mobile phones. The accessibility to markets is at a paramount level and gone are days of phone call trading and lack of information flows.  What are the essentials for Day Trading? Basic knowledge of markets With lack of basic knowledge of markets, day trading may yield unacceptable outcomes. It becomes imperative for people to know what’s on the stake. Prospective day traders should know about capital markets, and the securities traded in capital markets like bonds, equity and derivatives.  Buying shares and expecting a return from the price movements are on the to-do list for many. However, it is important to know about and risks and potential returns from speculating in capital markets.  After getting some basic knowledge about markets and securities, aspiring day traders should know how to analyse market prices of securities through fundamental analysis and technical analysis. Although day traders don’t practice fundamental analysis extensively, they spend considerable time to apply technical analysis, to formulate a entry and exit strategy.   Device and internet connection Trading is now possible on mobile applications as well as computer applications or websites. An aspiring day trader will likely begin with mobile phone given the accessibility, and laptops/computers are useful as scale grows larger and complex.  Internet connection is prerequisite to practising day trading, and it is favourable to have a fast internet connection to avoid glitches and potential problems. These perquisites are now available with large sections of societies.  Broker and trading platform A broker will facilitate a market for potential trades. The security brokerage industry has also seen a profound shift as technology has driven cost lower while competition is ramping up across jurisdictions. Large retail brokerages have moved towards zero commission trading in the U.S., and the same is seen being the trend across other geographies as well.  The entry of discount and online brokerages has perhaps given wings to the retail market participants as well as the retail market for security brokers. Robinhood has grown immensely popular in the United States, but there are many firms like Robinhood in other jurisdictions. Each country has some firms with business model on same lines as Robinhood.  Brokers now offer high-quality mobile applications and web services to clients, and trading security has never been so accessible. They also provide access to the global market along with a range of securities, including commodity derivatives, currency derivatives, CFDs, options, futures, bond futures etc.  Real-time market information flow   On public sources, market price information is at times not live due technical shortcomings, which will not work appropriately, especially for day traders. Brokers not only provide platform and market but several other services, including margin lending, real-time data, research.  Day traders closely track prices of securities and overall information flow to incorporate developments in bidding, and real-time data provides accurate prices throughout market hours.  Information flow largely relates to the news around the company, industry or economy. Day traders now have far better sources of information than the conventional sources, and sometimes these sources could be exclusive to a group.  What are the risks of day trading? Most of the aspiring day traders end up losing money, given the lack of experience and knowledge. They should rather only bet on capital that they are comfortable to loose, in short, they should avoid risk of ruin. Day trading is sort of pure-play speculation and application of knowledge, information flow, laced with good trading system is paramount. The only concern of day traders is movement in price, which contradicts from investments. Day traders try to time and ride the momentum in the price and exit the trade before momentum turns otherwise, which can happen frequently.  It consumes considerable time and induces stress on the individuals given the nature of security prices, which can move north and south abruptly throughout the day, hours, minutes and seconds. Day traders should have enough capital to trade in cash instead of margin.  Day trading on margin or borrowed money is extremely risky and has the potential to make a person insolvent, especially in cases of extreme risk-taking. The leverage associated with borrowed money magnifies profits as well as losses.  Aspiring day traders should equip themselves with adequate knowledge, competency and sound risk management process. Although fast money is dear to most, it is better to know what is at stake before jumping into markets with excitement.   

The average time taken by an entity to make payments to its creditors and suppliers is referred to as Days Payable Outstanding. It is impacted by the punctuality of making payments and by contractual terms.

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